The Securities and Exchange Commission staff in charge of the
rulewriting has been meeting with the agency's five commissioners,
circulating some documents that highlight potential courses of
actions and sounding them out to get their thoughts, the person
The SEC is still actively eyeing a plan that would force prime
institutional money market funds to abandon their stable $1
per-share net asset value and float their share price.
In response to some complaints from the industry, the SEC is also
exploring whether to make some changes from its initial proposal
that could effectively expand the number of money market funds that
would be exempt from a floating net asset value, the person added.
The SEC has been exploring ways to reform the $2.6 trillion money
market fund industry as a direct response to the financial crisis.
In 2008, exposures to Lehman Brothers caused a large prime
institutional fund known as the Reserve Primary Fund to have its net
asset value dip below $1, an event known as "breaking the buck."
Spooked investors rushed to get their money out, and the U.S.
government ultimately stepped in to prop up the money market fund
industry until the panic subsided.
The SEC's proposal, first released last summer, is aimed at
preventing similar runs.
In addition to proposing a floating NAV for prime funds, the plan
also contemplates an alternative which would permit fund boards to
impose liquidity fees and redemption gates during times of stress.
The SEC could potentially adopt one of the two options alone or in
The source added that the proposal for gates and fees are also still
on the table as well.
Earlier this week, the SEC released four new economic analyses on
money market funds that it is using to help inform a final rule and
asked the public to submit feedback on the studies.
SEC Republican Commissioner Michael Piwowar said on Wednesday that
he is advocating internally for the SEC to allow funds to choose
which option they prefer.
"My idea is, rather than us choosing for everybody, why don't we
allow for both options to be offered and then investors can choose
which one they want?" Piwowar said on the sidelines of an SEC event.
"I call it the investor choice model, or the belts or suspenders
model," he added.
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It is unclear if his idea could gain traction. A majority of the
five commissioners must agree before a rule can be adopted.
RETAIL EXEMPTION EYED
As part of the SEC's internal discussions, staff is discussing
making changes that would broaden an exemption for retail money
market funds from having to float their share price.
Retail funds were always supposed to be exempted from the floating
NAV plan because they are considered less at risk for runs. But many
in the industry have said that how the SEC defined retail is
In October, nine fund management companies including Blackrock,
Fidelity, Vanguard and Wells Fargo proposed an alternative
definition of retail.
Under the SEC's plan, a fund would be considered retail if it
prohibits a shareholder from redeeming more than $1 million per
The nine companies have urged the SEC to instead define a retail
fund as one that "limits beneficial ownership interest to natural
persons" such as individuals who are investing in money funds
through individual accounts or retirement accounts.
The Wall Street Journal reported earlier on the SEC's internal
deliberations concerning broadening the retail exemption.
(Reporting by Sarah N. Lynch in Washington, D.C.; additional
reporting by Supriya Kurane in Bangalore; editing by Gopakumar
Warrier and Andrew Hay)
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